Record jet-fuel prices are reversing one of the biggest trends in domestic air travel over the last 15 years, and that could leave some smaller cities with fewer daily flights — or none at all.

In the past eight years, hundreds of small regional jets with 50 or fewer seats, called RJs, replaced both smaller turboprops and bigger commercial jets on dozens of routes between big hubs and midsize airports.

The RJs were never huge profit makers in the best of times. Rather, they were promoted as economical substitutes for 110- to 140-seat jetliners on thin-demand routes because their ownership and operating costs were lower per mile flown. They were also marketed as more consumer-friendly than smaller, noisier, slower and less comfortable turboprop planes. Airlines invested heavily in them starting in the late 1990s, primarily to feed more travelers from small markets into their hubs and onto their more profitable mainline flights.

As a result, one in four commercial takeoffs today is made by a 50-seat or smaller RJ.

But the number of small RJs in service has begun to drop as the big airlines under whose brands most regional flights are sold recoil from jet-fuel spot market prices now averaging $3.79 a gallon.

There were 1,333 such planes flying in the USA on April 1, down from the peak of more than 1,350 a year ago, OAGback Aviation Solutions says. By Christmas, that number will be near 1,200, if all the service cutbacks announced and recently hinted at are implemented.

Cutbacks planned for fall

An announcement by Delta Air Lines this spring indicates how business judgment has turned against the RJs. Delta, which early this decade committed itself to operating the biggest fleet of them in the nation through its regional affiliates Comair and ASA, said it will dump 70 of those planes out of its Delta Connection operation by fall.

On Wednesday, American said it will remove from service 35 to 40 RJs flown by its regional airline affiliates. That's on top of grounding 40 to 45 of its mainline jets and a small number of turboprop regional airliners.

Continued high oil prices are likely to cause the nation's fleet of RJs to shrink faster and further than even the harshest critics of RJs originally anticipated.

"We think now that something like 835 RJs now in service in the USA will come out by 2013," says consultant Michael Boyd of the Boyd Group in Evergreen, Colo.

That would represent a 60% shrinkage of the USA's fleet of 50-seat and smaller RJs in just six years.

Boyd, an early proponent of RJs in the early 1990s, was one of the first to sound the alarm, in 1999, about the coming RJ glut. By 2007, with oil threatening $70 a barrel, he was predicting that about 1,200 RJs with 50 or fewer seats would be removed from service worldwide by 2018. That's out of a total of nearly 2,300 in service.

Now, with oil selling above $130 a barrel, Boyd estimates 1,700 of them will be gone by 2013.

"Airlines don't throw these big pieces of aluminum across the sky because it's fun," he says. "If the cost of operating a plane exceeds the revenue that can be put on board that plane, as it does now with the small RJ, it should be parked."

Parking 50-seat and smaller RJs will mean less service for many of the smaller cities where they are the primary or only vehicles of commercial air transport. Carriers have begun the gradual process of shaving markets back from five to seven flights a day to four or five, or even fewer.

"You can probably fly a 70-seater for very close to what you can fly a 50-seater," says Kit Darby, president of Air Inc., an aviation jobs market consulting firm. "What you'll likely see more of is … fewer flights each day on 70-seaters instead of 50-seaters. That way, they can capture the passenger demand that is there, but at overall lower operating costs."

In some of the thinnest-demand markets, fewer 50-seaters likely will mean losing service altogether. Currently, more than half of the 50-seaters fly on routes with 75 or fewer total passengers a day. If airlines raised fares enough to cover their operating costs in such markets, consumer demand could fall below the threshold for just one or two flights a day in such markets.

Aircraft manufacturing analyst Richard Aboulafia of the Teal Group says that in smaller cities where a larger airport is within two to three hours by car, operating fewer flights a day — either on 50- or 70-seat RJs — could become economically unsupportable as business travelers and leisure fliers opt to make relatively short drives to save time or money.

He also expects regional airlines to eliminate most, perhaps all, of their longer "hub bypass" flying in RJs.

Example: American Eagle said this month it will drop flights between Northwest Arkansas Regional Airport and Raleigh/Durham, N.C. That route bypasses American's Dallas/Fort Worth and Chicago O'Hare hubs and was designed to connect manufacturers' representatives from North Carolina with buyers at Wal-Mart's headquarters in Bentonville. Such routes are economic lost causes today.

An expected reversal

The two dominant makers of 50-seat and smaller RJs foresaw the problem early this decade.

Even as the jetmakers were delivering hundreds of 50-seat RJs, big airlines were shrinking their costs by shifting their most marginal flying to regional affiliates. The manufacturers figured that at some point, market growth would force the carriers to use larger planes on many of those routes and demand for more 50-seaters would slow to a trickle. So Canada's Bombardier and Brazil's Embraer decided to stop making 50-seaters for the U.S. market even before fuel began its climb.

Both now focus on producing larger aircraft seating 70 to 100 passengers. Embraer's 70-seat E-170 and larger models feature a wide fuselage cross section that comes close to the fuselage size of so-called mainline narrow-bodies such as the Boeing 737 and MD-80 and the Airbus A320 family of planes. Bombardier recently began offering a larger family of planes that will compete with the 110- to 140-seat class now dominated by the 737 and A320.

The trend: Record jet-fuel prices are making 50-seat
regional jets unprofitable to fly, says aviation consultant Michael Roach,
of Roach & Sbarra. An online analyzer tool his firm developed helps show
why.

Analysis: In this example, Roach compared
ExpressJet's costs of flying a 50-seat regional jet, an Embraer ERJ-145,
against Continental Airlines' costs of flying a Boeing 737-500 with the
same number of passengers and on the same 596-mile route. ExpressJet does
much of its flying as Continental Express. Roach based his analysis on both
airlines' reported third-quarter costs per available seat mile—what they
spent to fly one seat one mile—and ExpressJet's average passenger load and
its average flight length in the third quarter. ExpressJet's third-quarter
cost represents the portion of its fuel bill it paid, excluding a subsidy
from Continental. For this analysis, the airlines were assumed to pay the
same prices for fuel currently.

Conclusion: The 737's total operating costs
— calculated by multiplying cost per seat mile times number of seats times
distance flown — remain significantly higher than the ERJ’s, and it would
lose money on such routes. The ERJ's costs per seat mile now exceed those
of the larger Boeing jet, which potentially might carry more passengers
and generate more revenue per flight. At fuel prices of $3.15 a gallon,
the ERJ's total operating cost increases 39% in this example, making it,
too, a money-loser on such routes.

Period

Airline

Plane

Seats

Filled seats

Fuel price (gallons)

Distance (miles)

Cost/available seat mile (cents)

Total flight cost

Q3 2007

Express Jet

ERJ-145

50

38

$1.06

596

14.95

$4,455

Q3 2007

Continental

B737-500

114

38

$2.13

596

15.95

$10,837

Now

Express Jet

ERJ-145

50

38

$3.15

596

20.74

$6,181

Now

Continental

B737-500

114

38

$3.15

596

18.03

$12,250

Note: Current costs in this analysis are based
on a higher average cost of fuel $3.15 a gallon, a price
somewhat below recent spot market prices. Source: Roach & Sbarra Unit
Cost Analyzer

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The use of regional jets, like this from Brazil's Embraer company, peaked several months ago.

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